Even if you are new to bitcoin investments or haven’t yet put in a single dime, there is a good chance you have heard about bitcoin mining. Right from bitcoin news online to expert blog posts, the word “mining” comes up time and time again.
So, what is bitcoin mining? That’s exactly what we are going to discuss in this post. For the sake of simplicity, we are not going to delve deep into revealing the complex processes.
Instead, this guide is aimed at giving you a basic idea about bitcoin mining. While you won’t be able to mine bitcoins, at the end of this post you will be well aware of how things generally work. Without further ado, let’s dive in.
What Is Bitcoin Mining?
In case of normal currencies, the governments decide when to print and how much to print to fulfill the demand. However, bitcoin is not owned by a government or even a single centralized organization.
This begs the question, who makes bitcoins? The answer is everyone. Bitcoin miners use special software to solve math problems. Once these problems are solved they are rewarded with a certain amount of coins. Unlike buying or selling bitcoins, mining bitcoins adds to the total number of coins in circulation.
The math problems to unlock new coins is determined by a central network. These problems automatically get more difficult as more people try to mine for bitcoins.
When bitcoin mining started, users could solve these problems using their regular desktop computers. However, as the problems became more complex solving them required specialized hardware.
For a while, miners used high-end gaming configurations to solve these problems. However, these were soon replaced by specialized hardware rigs that were specifically designed to mine for bitcoins.
CPU and associated hardware were being specifically developed to perform bitcoin mining. This led to the introduction of ASIC (Application-Specific Integrated Circuit) chip, which was less power hungry and a lot faster than conventional CPUs.
Just like the hardware requirement grew exponentially, the human behind these computers also needed an upgrade.
Individual miners found it increasingly difficult to solve these problems on their own. This led to the formation of several teams of miners who would collectively solve the problems and divided the rewards amongst themselves.
Things You Need to Get Started
Bitcoin Mining Hardware: As explained earlier, you need specialized hardware to mine for bitcoins. There are several companies that manufacture bitcoin mining hardware. These hardware setups are extremely power efficient and thus ensures your profit is not lost on electricity bills.
Bitcoin Wallet: You need a bitcoin wallet where the mined coins will get deposited. Here are the basics. Exchanges allow you to transfer the bitcoins to other currencies such as American dollars.
Other wallets do not offer exchange services but are good for performing bitcoin transactions. Selecting a bitcoin wallet is not without its risks, so be careful and do your research.
Mining Pool: Once you have the necessary hardware setup you need to join a group of miners AKA a mining pool. There are several groups out there. Do your research and find out about the rewards strategies of different pools before joining.